SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest
event reported):
July 11, 2001 (June 29, 2001)
Empire Energy Corporation
(Exact Name of Registrant as specified in its charter)
Utah 1-10077 87-0401761
--------------------------- --------------- -------------------
(State or other jurisdiction) (Commission file (IRS Employer ID No.)
number)
7500 College Boulevard, Suite 1215
Overland Park, Kansas 66210
-------------------------------------------------
(address of principal executive offices) (zip code)
(913) 469-5615
--------------------------------------------------
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On June 29, 2001, Empire acquired 100% of Commonwealth Energy Corporation in
exchange for Empire shares on the basis of six shares of Commonwealth for one
share of Empire. As a result, Empire exchanged 5,763,263 shares of its common
stock for all the issued and outstanding common stock of Commonwealth. The
purchase price for the stock is $6,339,589 based on a market price of $1.10 per
Empire share on the date of the transaction. Additionally, Empire granted
488,082 options and 439,859 warrants to replace Commonwealth options and
warrants currently outstanding on a one for six basis and granted new options to
former Commonwealth personnel to purchase 576,310 Empire shares. The replacement
options and warrants have exercise prices ranging from US$0.80 to US$1.80 and
expire within approximately one month to 5 years. The new options have an
exercise price of US$3.00 and expire in five years. A fair value of $1,162,082
was calculated for these options and warrants using the Black-Scholes option
pricing model, with volatility of 118.79% and a discount rate of 8.5%.
Empire intends to use the assets acquired to continue the oil and gas
development and production activities previously pursued by Commonwealth.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
Audited financial statements of Commonwealth Energy Corporation are filed
herewith for the three years ending December 31, 2000.
(b) Pro forma Financial Statements
Pro forma financial information of Empire and Commonwealth Energy Corporation
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned duly authorized officer.
Empire Energy Corporation
(Registrant)
Dated: July 11, 2001 By: /s/ Norman L. Peterson
--------------------------------------
Norman L. Peterson, Chairman
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Following are the unaudited consolidated condensed pro forma financial
statements of Empire that reflect the acquisition of Commonwealth by Empire. The
unaudited pro forma consolidated condensed financial statements have been
prepared utilizing the historical financial statements of Empire which are
incorporated herein by reference to previous filings made with the Securities
and Exchange Commission and the historical financial statements of Commonwealth
included in this filing. The unaudited pro forma consolidated condensed
financial statements should be read in conjunction with the historical financial
statements of Empire and the attached historical financial statements of
Commonwealth.
The following unaudited pro forma consolidated condensed statements of
operations for the year ended December 31, 2000 and for the three month period
ended March 31, 2001 and the unaudited pro forma consolidated condensed balance
sheet as of March 31, 2001 give effect to the acquisition of Commonwealth
including the related pro forma adjustments described in the notes thereto. The
unaudited pro forma consolidated condensed statements of operations for the year
ended December 31, 2000 and for the three month period ended March 31, 2001 give
effect to the acquisition of Commonwealth by Empire as if the acquisition,
accounted for as a purchase, had occurred on January 1, 2000 and January 1,
2001, respectively. The unaudited pro forma consolidated condensed balance sheet
as of March 31, 2001 gives effect to the acquisition as if it had occurred on
March 31, 2001. The pro forma financial statements reflect the preliminary
allocation of the purchase price.
The unaudited pro forma consolidated condensed financial statements may not
be indicative of the results that actually would have occurred if the
acquisitions had been effective on the dates indicated or which may be obtained
in the future.
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
------
Unaudited Unaudited
Historical March 31, 2001 Pro Forma
---------------------------- Pro Forma March 31,
Empire Commonwealth Adjustments 2001
------------ ------------ ------------- ------------
CURRENT ASSETS
Cash $ 30,650 $ 64,545 $ -- $ 95,195
Accounts receivable, net 7,512 103,970 -- 111,482
Marketable securities 3,640 47,526 51,166
Prepaids -- 987 -- 987
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 41,802 217,028 -- 258,830
PROPERTY AND EQUIPMENT, NET 26,702 -- -- 26,702
OIL AND GAS PROPERTIES, NET
Properties being amortized -- 2,205,947 2,205,947
Properties not subject to amortization 2,100,839 1,582,407 (b) 4,048,756 7,732,002
OTHER ASSETS:
Minority equity investments -- 24,651 -- 24,651
Deposits and other 73,122 -- -- 73,122
Receivables - related party 102,842 -- -- 102,842
------------ ------------ ------------ ------------
TOTAL ASSETS $ 2,345,307 $ 4,030,033 $ 4,048,756 $ 10,424,096
============ ============ ============ ============
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 127,999 $ 227,119 (b) $ 350,000 $ 705,118
Notes payable - related parties 17,500 -- -- 17,500
Convertible debentures 20,000 -- -- 20,000
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 165,499 227,119 350,000 742,618
------------ ------------ ------------ ------------
DEFERRED INCOME TAXES -- -- -- --
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
Common stock 15,571 4,804,415 (a) (4,804,415) 21,334
(b) 5,763
Additional paid-in-capital 23,656,172 -- (b) 6,897,541 31,152,079
(b) 598,366
Treasury stock (1,125,000) -- -- (1,125,000)
Accumulated other comprehensive loss (9,643) -- -- (9,643)
Previous accumulated deficit (1,867,999) -- -- (1,867,999)
Accumulated deficit (18,489,293) (1,001,501) (a) 1,001,501 (18,489,293)
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,179,808 3,802,914 3,698,756 9,681,478
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,345,307 $ 4,030,033 $ 4,048,756 $ 10,424,096
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements.
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 2000
-------------------------------------------------------------------
Historical Pro Forma Unaudited
Empire Commonwealth Adjustments Pro Forma
------------ ------------ ----------- ------------
OIL AND GAS SALES $ 487,979 $ 272,689 $ -- $ 760,668
EXPENSES
Lease operating 13,406 119,093 -- 132,499
Depreciation, depletion, amortization
and impairment 289,948 79,223 -- 369,171
Interest, net 7,894 23,187 -- 31,081
Loss from equity investments 17,085 42,858 -- 59,943
General and administrative 544,557 321,854 -- 866,411
------------ ------------ -------- ------------
TOTAL EXPENSES 872,890 586,215 -- 1,459,105
------------ ------------ -------- ------------
OPERATING LOSS (384,911) (313,526) -- (698,437)
Provision for income taxes -- -- -- --
------------ ------------ -------- ------------
Loss from continuing operations $ (384,911) $ (313,526) $ -- $ (698,437)
============ ============ ======== ============
Loss Per Share:
Loss from continuing operations $ (0.04)
============
Weighted Average Shares Outstanding 18,679,355
============
- ------------------------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements.
EMPIRE ENERGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 2001
-----------------------------------------------------------------------
Unaudited Historical Pro Forma Unaudited
Empire Commonwealth Adjustments Pro Forma
------------ ------------ ------------ ------------
OIL AND GAS SALES $ 32,017 $ 41,641 $ -- $ 73,658
EXPENSES
Lease operating 7,160 16,375 -- 23,535
Depreciation, depletion, amortization
and impairment 1,380 11,849 -- 13,229
Interest, net (1,680) 80 -- (1,600)
Loss from equity investments 2,500 -- -- 2,500
General and administrative 113,895 141,576 -- 255,471
------------ ------------ ------------ ------------
TOTAL EXPENSES 123,255 169,880 -- 293,135
------------ ------------ ------------ ------------
OPERATING LOSS (91,238) (128,239) -- (219,477)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Loss from continuing operations $ (91,238) $ (128,239) $ -- $ (219,477)
============ ============ ============ ============
Loss Per Share:
Loss from continuing operations $ (0.01)
============
Weighted Average Shares Outstanding 20,532,103
============
- ------------------------------------------------------------------------------------------------------------------------
See notes to unaudited pro forma consolidated condensed financial statements.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Acquisition of Commonwealth
On June 29, 2001, Empire acquired 100% of Commonwealth in exchange for
Empire shares on the basis of six shares of Commonwealth for one share of
Empire. As a result, Empire exchanged 5,763,263 shares of its common stock for
all the issued and outstanding common stock of Commonwealth. The purchase price
for the stock is $6,339,589 based on a market price of $1.10 per Empire share on
the date of the transaction. Additionally, Empire granted 488,082 options and
439,859 warrants to replace Commonwealth options and warrants currently
outstanding on a one for six basis and granted new options to former
Commonwealth personnel to purchase 576,310 Empire shares. The replacement
options and warrants have exercise prices ranging from US$0.80 to US$1.80 and
expire within approximately one month to 5 years. The new options have an
exercise price of US$3.00 and expire in five years. A fair value of $1,162,082
was calculated for these options and warrants using the Black-Scholes option
pricing model, with volatility of 118.79% and a discount rate of 8.5%.
The purchase price results in an increase in the cost of the net assets of
Commonwealth of $4,048,756. Based on management's evaluation of the fair value
of the assets acquired and liabilities assumed, the Company allocated this
increase in cost to oil and gas properties.
Empire uses the full cost method of accounting for oil and gas properties.
This method of accounting requires that a ceiling test be performed periodically
to compare the recorded cost of oil and gas properties to the value of those
properties. Management believes that if a full cost ceiling test were performed
at the date of this transaction, an impairment of approximately $2,000,000 would
result. No charge for this possible impairment is included in the proforma
condensed income statements or balance sheet. A full cost ceiling write-down is
a non-recurring charge that is unrelated to the purchase acquisition and is not
representative of results of ongoing operations.
The historical financial information for Commonwealth was prepared using
U.S. Generally Accepted Accounting Principles.
Commonwealth's reporting currency is the Canadian dollar. Accounts whose
functional currency is the U.S. dollar that were translated to Canadian dollars
for Commonwealth reporting purposes were translated back at the rates used by
Commonwealth. Accounts whose functional currency is the Canadian dollar were
translated in the following manner: assets and liabilities at year end rates;
stockholder's equity at historical rates and results of operations at the
monthly average exchange rates. The effects of exchange rate changes are
reflected as a separate component of stockholders' equity.
The unaudited pro forma adjustments are as follows:
a. To remove the equity of Commonwealth upon the purchase by Empire.
b. To record the acquisition of Commonwealth under the purchase method:
Net assets acquired at fair value:
Current assets $ 217,028
Oil and gas properties 7,837,110
Minority equity investments 24,651
Current liabilities (227,119)
-----------
Total $ 7,851,671
===========
Consideration comprised of 5,763,263
common shares of Empire $ 6,339,589
Estimated transaction costs 350,000
Estimated consideration for replacement
options and warrants issued 1,162,082
-----------
Total $ 7,851,671
===========
Earnings per share:
The following is a reconciliation of historical to pro forma weighted average
shares outstanding:
Year Ended Three Months Ended
December 31, 2000 March 31, 2001
------------------------------------------
Historical 12,916,092 14,768,840
Shares issued to acquire
Commonwealth (assumed to
be at beginning of period) 5,763,263 5,763,263
----------------------------------
Pro forma 18,679,355 20,532,103
========== ==========
Basic earnings per share of common stock was computed by dividing loss
applicable to common stockholders, by the weighted average number of common
shares outstanding for the year. Diluted loss per share is not presented because
all potential common shares are anti-dilutive including those to be issued as
replacement options and warrants.
COMMONWEALTH SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
The following costs were incurred in oil and gas acquisition, exploration,
development, and producing activities during the year ended December 31, 2000:
Acquisition costs:
Proved....................................... --
Unproved..................................... (16,788)
Development.................................... 467,530
Exploration.................................... 5,253
--------
$455,995
Information regarding cost of oil and gas properties, both proven and
unevaluated and related depreciation and depletion is included in the notes to
the attached historical financial statements of Commonwealth.
OIL AND GAS RESERVES
The estimates of Commonwealth's proved oil and gas reserves and related future
net cash flows that are presented in the following tables are based upon
estimates made by independent petroleum engineering consultants.
Commonwealth's reserve information was prepared as of December 31, 2000. There
are many inherent uncertainties in estimating proved reserve quantities,
projecting future production rates, and timing of development expenditures.
Accordingly, these estimates are likely to change as future information becomes
available. Proved oil and gas reserves are the estimated quantities of crude
oil, condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those reserves expected to be
recovered through existing wells, with existing equipment and operating methods.
Estimated quantities of proved reserves and proved developed reserves of oil and
gas, as well as the changes in proved reserves, are as follows:
2000 2000
PROVED RESERVES: GAS (MCF) OIL (BBL)
- ---------------- --------- ----------
Beginning of year......................... 1,523,730 407,418
Extensions and discoveries................ 505,000 --
Production................................ (49,474) (1,305)
--------- ---------
End of year............................... 1,979,256 406,113
========= =========
Proved developed reserves................. 1,979,256 310,124
========= =========
% of proved developed reserves............ 100.0% 76.4%
========= =========
The following table sets forth a standardized measure of the estimated
discounted future net cash flows attributable to Commonwealth's proved oil and
gas reserves. Oil and gas prices have fluctuated widely in recent years. The
sales prices utilized for the purposes of estimating the Commonwealth's proved
reserves and future net revenues were year end prices with no provision for
escalation of either revenue or costs. The future production and development
costs represent the estimated future expenditures to be incurred in developing
and producing the proved reserves, assuming continuation of existing economic
conditions. Future income tax expense was computed by applying statutory income
tax rates to the difference between pretax net cash flows relating to the proved
reserves and the tax basis of proved properties and available operating loss
carryovers.
Gas Oil
----------- -----------
Future cash inflows .......................... $ 1,707,048 $ 9,152,652
Future production costs ...................... (315,994) (1,137,300)
Future development costs ..................... (21,450) (207,500)
Future income taxes .......................... (162,848) (1,442,356)
----------- -----------
Future net cash flows ........................ 1,206,756 6,365,496
10% discount to reflect timing of cash
flows ...................................... (546,601) (3,799,803)
----------- -----------
Standardized measure of discounted future
net cash flows ............................. $ 660,155 $ 2,565,693
=========== ===========
The following summarizes the principal factors comprising the changes in the
standardized measure of discounted future net cash flows:
Gas Oil
----------- -----------
Standardized measure, beginning of period ........ $ 173,918 $ 2,302,868
Sales of oil and gas, net of production
costs .......................................... (32,316) (20,225)
Extensions and discoveries ....................... 74,000 --
Net change in sales prices, net of production
costs .......................................... 499,000 275,000
Accretion of discount ............................ 7,391 51,379
Net change in income taxes ....................... (61,838) (43,329)
----------- -----------
Standardized measure, end of period .............. $ 660,155 $ 2,565,693
=========== ===========
Commonwealth Energy Corp.Commonwealth Energy Corp.
Consolidated
Financial Statements
(Expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
Contents
Page
----
Auditors' Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Deficit 3
Consolidated Statements of Cash Flows 4
Notes to the Consolidated Financial Statements 5-16
Report of Independent Auditors
To the Shareholders of
Commonwealth Energy Corp.
We have audited the consolidated balance sheets of Commonwealth Energy Corp. as
at December 31, 2000 and 1999 and the consolidated statements of operations and
deficit and cash flows for the years ended December 31, 2000, 1999 and 1998.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards for the years ended December 31, 2000, 1999 and 1998. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the company as at
December 31, 2000 and 1999 and the results of its operations and its cash flows
for the years ended December 31, 2000, 1999 and 1998 in accordance with Canadian
generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Vancouver, Canada ------------------------
April 20, 2001 Chartered Accountants
1
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Consolidated Balance Sheets
(expressed in Canadian Dollars)
December 31 December 31
2000 1999
- --------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 30,419 $ 54,147
Short term investments 67,478 14,433
Receivables 153,236 59,795
Prepaids 3,711 2,427
---------- ----------
254,844 130,802
Property and equipment (Note 4) 3,553,505 3,164,855
Unevaluated properties (Note 5) 2,121,619 1,506,056
Investment in Comanche Energy, Inc. (Note 6) 35,000 --
---------- ----------
$5,964,968 $4,801,713
========== ==========
- --------------------------------------------------------------------------------
Liabilities
Current
Payables and accruals $ 255,865 $ 322,785
Advances from directors (Note 7) 191,157 168,653
----------- -----------
447,022 491,438
Future income taxes (Note 8) 172,842 --
----------- -----------
619,864 491,438
----------- -----------
Shareholders' Equity
Capital stock (Note 9) 6,994,764 5,723,950
Capital stock subscribed (Note 9) 233,731 --
Share subscriptions receivable -- (5,501)
Deficit (1,883,391) (1,408,174)
----------- -----------
5,345,104 4,310,275
----------- -----------
$ 5,964,968 $ 4,801,713
=========== ============
- --------------------------------------------------------------------------------
Commitments (Note 12)
See accompanying notes to the consolidated financial statements.
2
- ----------------------------------------------------------------------------------------------------
Commonwealth Energy Corp.
Consolidated Statements of Operations and Deficit
(expressed in Canadian Dollars)
Year Year Year
Ended Ended Ended
December 31 December 31 December 31
2000 1999 1998
- ----------------------------------------------------------------------------------------------------
Oil and gas activities
Production revenues $ 406,998 $ 146,148 $ 41,973
------------ ------------ ------------
Expenses
Operating 187,380 153,043 15,388
General and administrative 480,379 307,355 370,387
Interest 34,608 52,838 24,649
Depletion and depreciation 115,881 219,925 123,087
Write-down of investment in Comanche Energy, Inc.
(Note 6) 63,967 -- --
------------ ------------ ------------
882,215 733,161 533,511
------------ ------------ ------------
Net loss $ (475,217) $ (587,013) $ (491,538)
============ ============ ============
Loss per share $ (0.02) $ (0.04) (0.03)
============ ============ ============
Weighted average common shares outstanding 21,234,584 16,137,348 14,290,180
============ ============ ============
- ----------------------------------------------------------------------------------------------------
Deficit, beginning of year $ (1,408,174) $ (821,161) $ (329,623)
Net loss (475,217) (587,013) (491,538)
------------ ------------ ------------
Deficit, end of year $ (1,883,391) $ (1,408,174) $ (821,161)
============ ============ ============
- ----------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
3
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Commonwealth Energy Corp.
Consolidated Statement of Cash Flows
(expressed in Canadian Dollars)
Year Year Year
Ended Ended Ended
December 31 December 31 December 31
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Cash derived from (applied to)
Operating
Net loss $ (475,217) $ (587,013) $ (491,538)
Depletion and depreciation 115,881 219,925 123,087
Write-down of investment in Comanche Energy, Inc.
(Note 6) 63,967 -- --
Amortization of reorganization costs -- 17,363 17,363
Change in non-cash operating working capital (Note 10) (51,736) (112,465) 182,745
----------- ----------- -----------
(347,105) 462,190) 168,343)
----------- ----------- -----------
Financing
Issue of capital stock, net of issue costs 1,001,315 474,499 766,711
Capital stock subscribed 233,731 -- 44,516
Advances from directors 21,504 21,881 85,869
Cash assumed on acquisition of 638260 Alberta Inc. 908 -- --
----------- ----------- -----------
1,257,458 496,380 897,096
----------- ----------- -----------
Investing
Property and equipment (881,036) (89,456) (833,430)
Prepaids and deferred charges -- 90,160 90,159
Short term investments (53,045) (14,433) --
----------- ----------- -----------
(934,081) (13,729) (743,271)
----------- ----------- -----------
Net (decrease) increase in cash (23,728) 20,461 (14,518)
Cash and cash equivalents
Beginning of year 54,147 33,686 48,204
----------- ----------- -----------
End of year $ 30,419 $ 54,147 $ 33,686
=========== =========== ===========
- ---------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow information
Interest paid $ 1,929 $ 25,654 $ 1,932
Non-cash investing and financing transactions
not included in cash flows
Trade payables assumed by purchaser on sale of
capital assets $ 101,479 $ -- --
Capital assets acquired through the assumption of
trade payables $ -- $ 202,500 $ --
Investment in Comanche Energy, Inc. acquired in
exchange for capital assets (Note 6) $ 98,967 $ -- $ --
Capital stock issued to acquire 638260 Alberta Inc.
less cash assumed (Note 3) $ 274,092 $ -- $ --
Capital stock issued for settlement of payables $ -- $ 23,250 $ --
Capital stock issued to acquire resource property $ -- $ 112,500 $ --
Capital stock issued for share subscriptions $ -- $ 50,017 $ --
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
4
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Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
1. Nature of operations and going concern
Commonwealth Energy Corp. is a junior petroleum and natural gas exploration and
development company with interests in Wyoming, Texas and Oklahoma, U.S.A. and
Alberta, Canada.
The company was incorporated under the laws of Alberta on December 14, 1987. On
December 12, 1997, the company acquired 100% of the shares of Blue Mountain
Resources Inc. and Commonwealth Energy (U.S.A.) Inc., both incorporated and
carrying on petroleum and natural gas exploration and development in the United
States. On January 1, 2000, the company acquired 100% of the shares of 638260
Alberta Ltd. carrying on petroleum and natural gas exploration and development
in Alberta, Canada (Note 3).
These consolidated financial statements have been prepared on a going concern
basis, which assumes the realization of assets and the settlement of liabilities
in the normal course of business. The application of the going concern concept
is dependent upon the company's ability to achieve future profitable operations
and to generate sufficient cash flows to pay operating costs and for future
exploration and development. Management is of the opinion that sufficient
working capital will be obtained from operations, debt financing or share
offerings to meet the company's liabilities and commitments as they come due.
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the company and
its wholly-owned subsidiaries, Blue Mountain Resources Inc., Commonwealth Energy
(U.S.A.) Inc. and 638260 Alberta Ltd. The results of operations of these
subsidiaries have been included from their date of acquisition and all material
intercompany balances and transactions have been eliminated.
Use of estimates
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the period.
Actual results could differ from these estimates.
General principles
These consolidated financial statements are presented in Canadian dollars and
are prepared in accordance with accounting principles generally accepted in
Canada. The accounting principles used conform in all material respects to
accounting principles generally accepted in the United States except as
disclosed in Note 15.
Short term investments
Short term investments consist of interest bearing certificates of deposit
carried at cost.
Other investments
The company accounts for investments in companies over which it does not
exercise control or significant influence at their historic cost. Declines in
the market value of such investments below historic cost are recognized when
such declines are considered to be other than temporary.
5
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Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
Joint operations
Substantially all petroleum and natural gas activities are conducted jointly
with others. These financial statements reflect only the company's proportionate
interest in such activities.
Resource properties and equipment
Capitalized costs
The company uses the full cost method of accounting for petroleum and natural
gas properties. Under this method, direct costs incident to the acquisition,
exploration, and development of properties (both developed and undeveloped),
including costs of abandoned leaseholds, lease rentals, unproductive wells, and
well drilling and equipment costs, are capitalized. The company expenses all
general corporate overhead and other internal cost not directly identified with
acquisition, exploration and development activities.
Generally, no gains or losses are recognized on the sale or disposition of
petroleum and natural gas properties, except for significant disposals for which
a gain or loss is included in earnings. Income in connection with contractual
services performed on wells in which the company has an economic interest is
credited to petroleum and natural gas properties as a component of the full cost
pool.
Depletion and depreciation
Depletion and depreciation of petroleum and natural gas properties and of well
equipment is provided using the unit-of-production method based upon estimated
proven reserves. The costs of unevaluated properties are excluded from costs
subject to depletion but are evaluated regularly by management to ascertain
whether an impairment has occurred. Exploratory dry holes are transferred to
costs subject to depletion when it is determined that proven reserves are not
economically producable for the lease. Geological and geophysical costs such as
seismic surveys and library data which cannot be associated with the potential
acquisition of specific properties are included in the amortization base as
incurred. For depletion and depreciation purposes, relative volumes of petroleum
and natural gas production and reserves are converted at the energy equivalent
conversion rate to equivalent barrels of crude oil.
Future site restoration costs
Estimated future site restoration costs are provided for using the
unit-of-production method and are included in the provision for depletion and
amortization. Costs are estimated by the company based on current regulations,
costs, technology and industry standards.
Ceiling test
In applying the full cost method, the company performs a ceiling test
calculation whereby the carrying value of petroleum and natural gas properties
is compared to estimated undiscounted future net cash flows from the production
of proven reserves. Net cash flows are estimated using period end prices, less
estimated royalties and operating expenses, estimated future general and
administrative expenses, financing costs and income taxes. Should this
comparison indicate that the carrying value exceeds future net cash flows, the
excess is charged against earnings as additional depletion and depreciation.
6
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Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
Reorganization costs
Reorganization costs are being amortized on the straight line method over three
years.
Foreign currency translation
Monetary assets and liabilities of the company's wholly-owned U.S.A.
subsidiaries are translated into Canadian dollars at the year end rate of
exchange, and non-monetary assets and liabilities at the exchange rates in
effect at the time of acquisition or issue. Revenue and expenses are translated
at the average rate of exchange for the year. Exchange gains or losses arising
on translation are included in net income or loss for the period.
Stock options
The company has outstanding stock options as disclosed in Note 9. No
compensation expense is recognized for this plan when shares or share options
are issued to employees and directors. Any consideration paid by employees and
directors on exercise of share options or purchase of shares is credited to
share capital. If shares or share options are repurchased from employees and
directors, the excess of the consideration paid over the carrying amount of the
shares or share options cancelled is charged to the deficit.
Income taxes
Prior to 2000, the company followed the tax allocation method of accounting for
income taxes, whereby differences between the provision for income taxes on the
earnings or loss for accounting purposes and the income taxes currently payable
or recoverable were shown as deferred income taxes. In 2000, the company has
adopted the new accounting recommendations for income taxes issued by the
Canadian Institute of Chartered Accountants, whereby future income tax assets
and liabilities are computed based on differences between the carrying amount of
assets and liabilities on the balance sheet and their corresponding tax values,
using the enacted income tax rates at each balance sheet date. Future income tax
assets also result from unused loss carry-forwards and other deductions. The
carrying value of future income tax assets is reviewed annually and adjusted, if
necessary, by use of a valuation allowance to reflect the estimated realizable
amount.
The company has adopted this change in accounting policy retroactively. This
adoption results in no changes to the financial statements of prior periods.
Loss per share
Per share data is computed by dividing net loss by the weighted average number
of common shares outstanding during each period. A total of 9,865,370 shares
issued in escrow (see Note 9), which are subject to return to treasury if
specific cash flow targets are not met, are excluded from outstanding shares for
this purpose until release conditions are met. Fully diluted per share amounts
are not presented as the effect of the outstanding options and warrants is
anti-dilutive.
Financial instruments
The company has various financial instruments including cash, short term
investments, receivables, payables and accruals, and advances from directors. It
was not practicable to determine the fair value of the advances from directors.
The carrying values of all other financial instruments approximates their fair
values.
7
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
3. Acquisition
On January 1, 2000, the company acquired 638260 Alberta Ltd. in a
share-for-share exchange where the company issued 1,375,000 of its common shares
in exchange for all the issued and outstanding shares of 638260 Alberta Ltd. The
acquisition has been accounted for by the purchase method with the company as
the acquirer as follows:
Identifiable assets acquired at
estimated fair market value
Current assets $ 8,869
Petroleum and natural gas properties 439,504
--------
448,373
Less liabilities assumed:
Current liabilities 531
Future income taxes 172,842
--------
Net assets acquired $275,000
========
Consideration
1,375,000 common shares $275,000
========
- --------------------------------------------------------------------------------
4. Property and equipment December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Petroleum and natural gas properties $4,258,465 $3,753,934 $3,630,547
Less: accumulated depletion and depreciation 708,679 594,252 376,401
---------- ---------- ----------
3,549,786 3,159,682 3,254,146
---------- ---------- ----------
Office equipment 11,954 11,954 11,954
Less: accumulated depreciation 8,235 6,781 4,707
---------- ---------- ----------
3,719 5,173 7,247
---------- ---------- ----------
$3,553,505 $3,164,855 $3,261,393
========== ========== ==========
The company has not included any direct or indirect internal costs in the cost
of its petroleum and natural gas properties. All costs capitalized as petroleum
and natural gas properties represent external, third party costs incurred.
Depreciation and depletion of petroleum and natural gas properties per
equivalent barrel of crude oil production:
December 31, 1998 $ 47.73
December 31, 1999 $ 20.72
December 31, 2000 $ 19.99
8
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
5. Unevaluated properties
The company owns unevaluated prospects in the states of Wyoming and Texas,
U.S.A. Evaluation studies and exploration plans are intended to be put in place
to assess each of the prospects with the goal being to bring as many of them to
producing status. The associated costs have been excluded in computing depletion
of the full cost pool.
Costs of unevaluated properties include:
Acquisition Exploration Development
Year Incurred Costs Costs Costs Total
- ------------- ----- ----- ----- -----
1997 $ 506,728 $ 2,557 $ 341,247 $ 850,532
1998 78,673 -- 295,782 374,455
1999 17,272 12,533 251,264 281,069
---------- ---------- ---------- ----------
At December 31, 1999 602,673 15,090 888,293 1,506,056
2000 (25,057) 7,841 632,779 615,563
---------- ---------- ---------- ----------
At December 31, 2000 $ 577,616 $ 22,931 $1,521,072 $2,121,619
========== ========== ========== ==========
The company has not included any direct or indirect internal costs in the costs
of its unevaluated properties. All costs capitalized as unevaluated properties
represent external, third party costs incurred.
The company will begin to deplete these costs when proven reserves are
established or an impairment is determined. Management believes this assessment
will occur in 24 to 36 months.
- --------------------------------------------------------------------------------
6. Investment in Comanche Energy, Inc.
On January 1, 2000, the company disposed of an undivided 25% interest in an oil
and gas property located in Parker County, Texas. The consideration received for
this disposition was 220,000 common shares of Comanche Energy, Inc. with a fair
value of $98,967 on the date that the shares were acquired. The company's
investment in Comanche Energy, Inc. represents approximately 0.05% of that
company's issued and outstanding common shares.
During 2000, management concluded that there was a permanent impairment in the
value of this investment and accordingly, has recorded a valuation adjustment of
$63,967.
- --------------------------------------------------------------------------------
7. Advances from directors
Certain directors of the company have made cash advances for working capital.
These advances are unsecured, bear interest at 18% per annum, and are due on
demand.
9
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
8. Future income taxes
Provision for income taxes
December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Loss before taxes $(475,217) $(587,013) $(491,538)
--------- --------- ---------
Expected tax expense at combined federal and
provincial rates of 44.62% $(212,041) $(261,925) $(219,324)
Increase (decrease) resulting from:
Write-down of investment for accounting
purposes 28,529 -- --
Statutory rate differences 20,018 17,367 14,542
Increase in valuation allowance
on future tax asset 98,566 244,558 204,782
Other 64,928 -- --
--------- --------- ---------
$ Nil $ Nil $ Nil
========= ========= =========
Future income taxes consist of the following effects of temporary differences:
December 31 December 31
2000 1999
---- ----
Petroleum and natural gas properties $ (587,842) $ (311,000)
Investment in excess of accounting value 29,000 -
Non-capital loss carry forwards 1,020,000 846,000
Valuation adjustment (634,000) (535,000)
------------ -----------
$ (172,842) $ Nil
============ ===========
The future income tax liability balance relates to operations of the Canadian
subsidiary.
The company has operating losses available for tax purposes that expire as
follows:
2001 $ 43,000
2003 30,000
2004 37,000
2005 325,000
2006 295,000
2007 431,000
2011 160,000
2012 536,000
2018 165,000
2019 378,000
2020 103,000
------------
$ 2,503,000
============
10
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
9. Capital stock
Authorized:
The company is authorized to issue an unlimited number of voting common shares
and an unlimited number of non-voting preferred shares, issuable in series, as
may be determined by the directors of the company.
Issued:
Common shares:
Number of
Shares Amount
------ ------
Balance, December 31, 1997 23,419,709 $ 4,296,973
Private placement at $0.70 760,459 532,321
Exercise of stock options at $0.50 468,780 234,390
---------- -----------
Balance, December 31, 1998 24,648,948 5,063,684
Issued for settlement of payables at $0.38 61,184 23,250
Exercise of stock options at $0.50 49,031 24,516
Issued to SHA Stephens for the acquisition of property at $0.30 375,000 112,500
Private placement at $0.20 per unit. Each unit consists of one
common share and one common share purchase warrant
exercisable until July 29, 2001 at $0.30 per share 2,500,000 500,000
---------- ----------
Balance, December 31, 1999 27,634,163 5,723,950
Issued for the acquisition of 638260 Alberta Inc. 1,375,000 275,000
Private placement at $0.20 per unit. Each unit consists of one
common share and one common share purchase warrant
exercisable until March 14, 2002 at $0.30 per share 750,000 150,000
Exercise of stock options at $0.30 543,993 163,198
Exercise of warrants at $0.30 2,275,388 682,616
---------- ----------
Balance, December 31, 2000 32,578,544 $ 6,994,764
========== ===========
Preferred shares:
No preferred shares have been issued.
Subscribed:
Subsequent to year end, the company issued 934,924 shares in consideration for
the $233,731 received during 2000.
11
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
9. Capital stock (Continued)
Stock options
The company has established a plan for granting stock options to officers,
directors, employees and key consultants under a share option plan approved by
the shareholders on September 25, 1997. At December 31, 2000, options covering
2,928,504 common shares were outstanding at varying exercise prices.
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------- -----------------------------
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Life Price Number Price
Number Outstanding (In Years) Per Share Exercisable Per Share
- ------------------ ---------- --------- ----------- ---------
600,000 3.91 0.20 600,000 0.20
600,000 4.81 0.25 600,000 0.25
1,678,504 3.69 0.30 1,678,504 0.30
50,000 4.30 0.45 50,000 0.45
--------- ---------
2,928,504 2,928,504
========= =========
Changes in the number of options outstanding during each of the three years ended December 31, 2000, 1999 and 1998 are:
December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Balance, beginning of period 2,572,497 1,671,528 $ 2,140,308
Exercised (543,993) (49,031) (468,780)
Granted 2,177,841 1,200,000 --
Cancelled (1,277,841) (50,000) --
Expired -- (200,000) --
----------- ----------- -----------
Balance, end of period 2,928,504 2,572,497 $ 1,671,528
----------- ----------- -----------
Warrants
Warrants Outstanding Warrants Exercisable
- ----------------------------------------------------------------------------------------- -----------------------------
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Life Price Number Price
Number Outstanding (In Years) Per Share Exercisable Per Share
- ------------------ ---------- --------- ----------- ---------
224,612 warrants issued in a private placement
in 1999 0.58 0.30 224,612 0.30
750,000 warrants issued in a private placement
in 2000 1.15 0.30 750,000 0.30
-------
974,612
=======
12
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
9. Capital stock (Continued)
Changes in the number of warrants outstanding during each of the three years
ended December 31, 2000, 1999 and 1998 are:
December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Balance, beginning of period 2,500,000 -- --
Exercised (2,275,388) -- --
Issued 750,000 2,500,000 --
Cancelled -- -- --
Expired -- -- --
---------- ---------- ----------
Balance, end of period 974,612 2,500,000 Nil
========== ========== ==========
Escrow shares
As at December 31, 2000, a total of 9,865,370 common shares issued on the
acquisition of Blue Mountain and Commonwealth U.S.A. to certain officers and
directors are held in escrow. These common shares may be released from escrow on
approval by the Canadian Venture Exchange ("CDNX"), on the basis of one common
share for every $0.50 of cash flow realized by the company from its oil and gas
properties. If not released from escrow by December 18, 2002, any shares
remaining in escrow shall be cancelled, unless otherwise exempted by the CDNX.
- --------------------------------------------------------------------------------
10. Change in non-cash operating working capital December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Receivables $ (84,480) $ (19,476) $ 12,379
Prepaids (1,284) (655) (1,772)
Payables and accruals 34,028 (92,334) 172,138
--------- --------- ---------
$ (51,736) $ 112,465) $ 182,745
========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------
11. Related party transactions
During the year, the company had the following transactions with related
parties:
(a) Included in interest expense is interest paid to directors in the amount of
$32,678 (1999: $27,184: 1998: $22,717).
(b) Incurred management fees of $Nil: (December 31, 1999: $Nil: December 31,
1998: $9,200) for services provided by the directors of the company.
(c) Incurred salaries and benefits of $96,000: (December 31, 1999: $109,156:
December 31, 1998: $104,606) for services provided by the directors of the
company.
(d) Included in receivables are amounts due from directors in the amount of
$7,968 (1999: $7,967: 1998: $32,810). Included in payables and accruals are
amounts due to directors in the amount of $189,657 (December 31, 1999:
$Nil: December 31, 1998: $Nil).
13
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
11. Related party transactions (Continued)
(e) In January, 2000, the company acquired from a director all issued and
outstanding shares of 638260 Alberta Ltd., which owns petroleum and
natural gas leases and land in the Vermillion area of East Central
Alberta. The purchase price for the acquisition of $275,000 was satisfied
by the issuance of 1,375,000 common shares of the company at a price of
$0.20 per share which was an estimate of the fair value of the shares
issued on the date of acquisition (Note 3).
Subsequent to year end, the assets of 638260 Alberta Ltd. were sold for
cash consideration of $325,000 to a company in which a director is an
officer.
- --------------------------------------------------------------------------------
12. Commitments
During 1999, the company entered into an agreement with respect to investor
relations consulting services for the company. The term of this agreement shall
be for a period of one year, effective January 1, 2000, and can be renewed at
the option of the company for a further six months. The company is required to
pay $5,000 per month for a total of $60,000.
- --------------------------------------------------------------------------------
13. Subsequent event
Pursuant to a Share Exchange Agreement dated December 12, 2000, and subject to
shareholder and regulatory approval, the company will become a wholly-owned
subsidiary of Empire Energy Corporation ("Empire") a U.S. company trading on the
OTC bulletin board. The acquisition of the company by Empire will be effected
through a transaction referred to as a "paired" exchangeable share transaction.
The exchangeable shares will automatically be exchanged for Empire common shares
on or before December 31, 2007, and it is expected that this conversion will be
completed well in advance of this date. Upon conversion of the exchangeable
shares issued in this transaction, former Commonwealth shareholders will own
5,763,091 Empire common shares representing 30% of Empire's issued and
outstanding common shares.
- --------------------------------------------------------------------------------
14. Segmented information
Commencing in 2000, the company operates in two geographical segments: Canada
and the United States. The income and expenses for the prior years were
attributable to one geographical segment, the United States. For the year ended
and as at December 31, 2000, income and expenses, and assets were attributable
to the following segments:
Canada U.S.A. Total
------ ------ -----
Revenue $ 154,146 $ 252,852 $ 406,998
Operating expenses (13,800) (173,580) (187,380)
Write-down of investment -- (63,967) (63,967)
----------- ----------- -----------
$ 140,346 $ 15,305 155,651
=========== ===========
Corporate expenses 630,868
-----------
Net loss $ (475,217)
===========
Property and equipment $ 434,329 $ 3,119,176 $ 3,553,505
Unevaluated properties -- 2,121,619 2,121,619
----------- ----------- -----------
$ 434,329 $ 5,240,795 $ 5,675,124
=========== =========== ===========
14
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Reconciliation between Canadian and United States generally accepted
accounting principles
These consolidated financial statements have been prepared in accordance with
Generally Accepted Accounting Principles (GAAP), in Canada, which differ in some
respects from GAAP in the United States. The material difference between the two
is summarized below:
Under U.S. GAAP, the company would have calculated the gain or loss on foreign
exchange in accordance with FAS 52 under which assets and liabilities are
translated at the foreign exchange rate at the balance sheet date and the
results of operations are translated at the average foreign exchange rate for
the period. Under Canadian GAAP, the company converts the financial position and
results of operations of its U.S. subsidiaries under the temporal method under
which U.S. dollar property and equipment costs are translated to Canadian
dollars at historical exchange rates. Also, under U.S. GAAP, the foreign
exchange gain or loss recorded by the company from translation of foreign
currency balances would have been presented as a component of shareholders
equity instead of being included in net loss.
Also, under U.S. GAAP, SOP 98-5 requires reorganization costs to be expensed as
incurred. Under Canadian GAAP, deferral and amortization of such costs is
permissible.
The effect of the above differences in the carrying value of total assets,
shareholders' equity, loss for the year and on the statement of cash flows are
as follows:
December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Total assets
Canadian basis $ 5,964,968 $ 4,801,713 $ 4,686,173
Add:Increase in net book value of the carrying
value of petroleum and natural gas
properties as a result of the application of
FAS 52 208,398 90,303 318,204
Deduct: Expense deferred reorganization costs in
accordance with SOP 98-5 -- -- (17,363)
Increase in depletion as a result of the
application of FAS 52 (4,168) (1,806) (6,364)
----------- ----------- -----------
U.S. basis $ 6,169,198 $ 4,890,210 $ 4,980,650
=========== =========== ===========
Shareholders' equity
Canadian basis $ 5,345,105 $ 4,310,275 $ 4,287,039
Add:Increase in shareholders' equity as a result
of the application of FAS 52 208,398 90,303 318,204
Deduct: Expense deferred reorganization costs in
accordance with SOP 98-5 -- -- (17,363)
Increase in depletion as a result of the
application of FAS 52 (4,168) (1,806) (6,364)
----------- ----------- -----------
U.S. basis $ 5,549,335 $ 4,398,772 $ 4,581,516
=========== =========== ===========
15
- --------------------------------------------------------------------------------
Commonwealth Energy Corp.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
15. Reconciliation between Canadian and United States generally accepted
accounting principles (Continued)
December 31 December 31 December 31
2000 1999 1998
---- ---- ----
Loss for the year
Canadian basis $ 475,217 $ 587,013 $ 491,538
(Decrease) increase in loss as a result of the
application of FAS 52 (9,630) 22,207 10,906
Decrease in loss as a result of the application of
SOP 98-5 -- (17,363) (17,363)
Increase (decrease) in loss related to depletion
adjustment 2,362 (4,558) 5,988
----------- ----------- -----------
U.S. basis $ 467,949 $ 587,299 $ 491,069
=========== =========== ===========
Loss per share
Canadian basis $ (0.02) $ (0.04) $ (0.03)
=========== =========== ===========
U.S. basis $ (0.02) $ (0.04) $ (0.03)
=========== =========== ===========
Consolidated statement of cash flows
Cash derived from (applied to)
Operating
U.S. basis net loss $ (467,949) $ (587,299) $ (491,069)
U.S. basis foreign exchange (9,630) 22,207 10,906
U.S. basis depletion 118,243 215,367 129,075
Write-down of investment in Comanche 63,967 -- --
Change in non-cash operating working capital
balances (51,736) (112,465) 182,745
----------- ----------- -----------
Operating under Canadian and U.S. basis $ (347,105) $ (462,190) $ (168,343)
=========== =========== ===========
Financing under Canadian and U.S. basis $ 1,257,458 $ 496,380 $ 897,096
=========== =========== ===========
Investing under Canadian and U.S. basis $ (934,081) $ (13,729) $ (743,271)
=========== =========== ===========
16